Telecom has brought in management consultancy McKinsey to run the ruler over its costs.

It would not confirm or deny a rumour it was also economising by switching to cheaper tea bags.

Spokesman Andrew Pirie said McKinsey had been engaged to assist with a cost-cutting drive that was being overseen by "chief turnaround officer" Matt Crockett.

Crockett, who is himself a former McKinsey consultant, rejoined Telecom in September after a three-year absence from the firm.

McKinsey has been benchmarking Telecom against its overseas peers to see if it is following best practices, Pirie said.

A source said Telecom had switched to a cheaper supplier of tea bags, but Pirie would not confirm that. "I go down to the coffee shop."

The austerity drive has helped persuade Forsyth Barr to upgrade Telecom shares from "hold" to "accumulate". The broker said in a research note it had increased its 12-month target price for Telecom shares by 20 cents to $2.45.

Analyst Blair Galpin said Telecom had targeted further headcount reductions this financial year. The company employed 6622 staff in June, after axing 981 full-time positions as a result of an earlier cost-cutting drive announced by chief executive Simon Moutter in February.

Pirie confirmed it was likely Telecom would end this financial year with fewer staff, but he denied it had a reduction "target".

The "centralised programme" run by Crockett was looking for cost reductions across-the-board, he said.

Staffing costs represented a minority of Telecom's overall costs but would not be ignored.

"It is not just a cost-cutting exercise, it is a business improvement exercise as well," Pirie said.

McKinsey had been providing advice to Crockett for two months and the engagement was not likely to end anytime soon, he said.